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Confucius' Three Keys To Successful Leadership

How do you lead your company through a time when all the old rules are overthrown, when the only certainty is uncertainty? Managers have been looking near and far for answers to that question.

You can't look much farther than Confucius. The Chinese philosopher composed his thoughts no less than 2,500 years ago. They were brought to the West two millennia later, when Matteo Ricci translated the Analects, the collected aphorisms and wisdom of Confucius, into Latin. They resonate as much today as when they were new.

Here are three ultimate lessons that business people everywhere can derive from Confucius' Analects. If anything has ever stood the test of time, they have.

Above all be virtuous.

"Virtue is more to man than either water or fire. I have seen men die from treading on water and fire, but I have never seen a man die from treading the course of virtue."

One of Confucius' most important principles is the supremacy of virtue. He argues that acting ethically in all transactions is is paramount, more important than striving to make money. He would be shocked at the way unfettered greed has poisoned Wall Street. But he would not turn against commerce. Like most Americans, Confucius would be pro-business. He would simply insist that it be done ethically.

Many have feared a wave of populist rage at the wealthy. It hasn't happened. Mainstream America expresses anger at people it feels may have scammed the system, like Merrill Lynch's John Thain, but not at wealthy people it feels built fortunes with honest work and virtue. Consider the continued popularity of Oprah Winfrey, Warren Buffett and Donald Trump. They are three of the world's richest people, and they remain as idolized as ever.

Oprah recently said in a Duke University commencement speech, "Anyone that tells you that having your own private jet isn't great is lying to you." Yet nobody clamors for Oprah's head. People feel she honestly built something of value, never acting as a parasite. The same goes for Warren Buffett, who has made more money investing than any hedge fund manager. The Oracle of Omaha is seen as following a virtuous path in his dealings and as remaining humble in how he lives. He is a man who prefers Cherry Coke to Dom Perignon. To get ahead in today's changed business world, business leaders need to heed Confucius. Acting virtuously is always absolutely necessary. Not only is it right; it is, in the long run, the way to wealth.

Rule wisely and fairly.

Chi K'ang asked how to cause the people to reverence their ruler, to be faithful to him and to go on to nerve themselves to virtue. The Master said, "Let him preside over them with gravity; then they will reverence him. Let him be final and kind to all; then they will be faithful to him. Let him advance the good and teach the incompetent; then they will eagerly seek to be virtuous."

Confucius laments throughout the Analects that too often leaders forget to take care of those under them. They spend too much time trying to grab glory and riches for themselves without thinking about others. In a time of crisis they behave even worse, fighting to preserve their positions at all costs. That is exactly the opposite of what they should do, for themselves and for their organizations.

Jim Collins, in his new book, How the Mighty Fall, identifies basic problems that plague companies that succumb to mediocrity. One is managers seeking to grab all the credit for themselves without a care for their colleagues and subordinates.

Collins and Confucius both conclude that good leaders always look after the people around them, and that in so doing they benefit everyone. Even--or especially--in a time of job cuts and salary reductions, employees must be treated with respect. The Chinese search engine giant Baidu tried to save costs by cutting salaries while insisting on unattainable sales quotas. The combination not only destroyed morale and spurred anger; it also became a public relations disaster when employees protested publicly. The bad press made global headlines. Baidu will have to invest a lot of resources in undoing the stigma it earned of being bad place to work.

Think--then act, decisively.

Chi Wan thought three times before taking action. When the Master was informed of it, he said, "Twice will do."

Think hard before doing something, but then take decisive steps. Wait too long and your advantage in the market disappears. Too often executives act without thinking through their actions, or they don't act at all and instead rely on the status quo to see them through. Confucius insists that thinking twice before action is smart. Look before you leap, but don't look for so long that you succumb to indecision.

In 2007 hardly anyone knew what a netbook was. Looking at the market, people at companies like Asus and Acer noticed that laptop makers like Dell weren't giving consumes everything they wanted. They pounced on the unmet need and began selling inexpensive small computers that would provide the basic functions like Web surfing that most consumers demand. Major laptop makers held back, seeing netbooks as a low-margin fad not worth getting involved in. They didn't take the time to see the big picture.

In 2008, sales of netbooks topped 11 million. Asus and Acer between them control 68% of a market that some estimate will reach 35 million units in 2009. Companies like Lenovo are playing catch-up as it becomes increasingly clear that the fad is here to stay. Those companies may now need to spend a lot of money chipping away at Acer and Asus' lead.

Weighing options is important, and so is getting good market intelligence, but you need to be decisive and in tune with market demands. A commanding lead disappears fast if you let another company do a better job of providing for your customers.

Executives are grappling with difficult and unprecedented times right now. A reading of Confucius reminds us that virtue, looking out for those around us and taking calculated but decisive action are all essential behaviors that we cannot ever do without.

Shaun Rein is the founder and managing director of the China Market Research Group, a strategic market intelligence firm focused on China. He writes often for Forbes on leadership, strategy and marketing. For more from Shaun Rein, click here.